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Ranking business schools is controversial. Just read the blogs.

As consumers, we find it helpful to have things ranked, particularly for expensive purchases. J.D. Power ranks automobiles. Consumer Reports ranks cameras and dishwashers. Bloomberg BusinessWeek, U.S. News and World Report, Forbes, The Economist, and The Financial Times all rank business schools.

Choosing an MBA program can be difficult. The cost is high, not only in terms of dollars but also in terms of the time commitment—two years in the case of a traditional full-time MBA program. Moreover, prospective students can’t draw on past experience as a guide because they will pursue only one MBA degree in their lifetime.

Which schools are the best business schools? This is an important question for potential full-time MBA students who are about to invest $150,000 or more (including the opportunity cost of two years of foregone salary).

Confusion in the ranks

So which published ranking is correct? This table shows the 2011 Top Five business schools from each of these publications.

Rank

Business Week

U.S. News

Forbes

Economist

Financial Times

1

Chicago

Stanford

Harvard

Dartmouth

London

2

Harvard

Harvard

Stanford

Chicago

Wharton

3

Wharton

Wharton

Chicago

IMD

Harvard

4

Northwestern

MIT

Wharton

Virginia

INSEAD

5

Stanford

Northwestern

Columbia

Harvard

Stanford

Why is Stanford ranked #5 by BusinessWeek but #1 by U.S. News? And why does MIT show up only in one publication’s Top Five?

Clearly these publications are using different criteria for their rankings:

BusinessWeek's ranking is an opinion survey of graduating students (weighted 45%) and corporate recruiters (45%), with an additional rating of faculty research (10%). An important limitation of surveying MBA students at the time of graduation is that short-term annoyances such as a low grade or difficulty finding the right job can cause a few students to give the school a low rating, causing the student ratings of the school to plummet. This makes the graduating student survey results very volatile from year to year. Accordingly, BusinessWeek smooths the student survey data by mixing in old data from previous years, and recently they have started doing the same with the recruiters’ survey.

U.S. News combines a weighted mix of seven factors including starting salaries, GMAT scores, surveys of business school deans and recruiters, undergraduate GPAs, and so on. I have never seen a study that validates the long-term success of MBA graduates as a function of these factors and their weightings.

Forbes is a very different kind of ranking. It looks at an MBA degree as an investment. Forbes ranks business schools on the financial gain of graduates in the first five years post-MBA compared to their pre-MBA pay. (In the interest of full disclosure, I created the Forbes ranking methodology in my 1994 book, The MBA Advantage, Chapter 4, and it was adopted by Forbes in 2000.)

The Economist and The Financial Times are similar to U.S. News in that they employ a mix of factors, some subjective and some objective, and because they are published in Europe, they focus on global rankings of MBA programs.

Individual rankings are unstable

These rankings change with each new survey (this is important for ongoing sales of these magazines). When choosing a business school, the school that leads the rankings now may be #10 by graduation time. Rather than being concerned about which school is ranked #1 and which is ranked #2, consider this: In the U.S. alone there are 972 schools offering the MBA. Any school that makes it into the Top 50 of these published rankings is in the top 5% of business schools. By any measure, they are all first rate schools.

Rankings put pressure on schools to improve teaching quality

Good teaching has not always been a priority at many of the leading business schools. Before BusinessWeek began ranking MBA programs in 1988, faculty hiring and promotion decisions were based almost entirely on research productivity—the number of scholarly papers a faculty member published in the top research journals. Young faculty members were cautioned to “not over-invest in teaching”—in other words, to concentrate on their research. Consequently, some of the business school teaching in those days was abysmal.

The BusinessWeek rankings created by John Byrne changed all that. Once business schools learned that student satisfaction—one of the two components in the original BusinessWeek ranking—had a big effect on applications, teaching quality became very important. Young untenured faculty were now told that student evaluations of their teaching would have a significant effect on promotion and tenure decisions—but research productivity would still dominate. Many young faculty found this change in the rules of the game to be extremely stressful.